Public ideas
What is replacing neoliberalism?
When one comes across claims of “new paradigms” to replace neoliberalism, it’s a good idea to be sceptical. The world is full of romantics, wannabe Marxists who never read Das Kapital, and economic dreamers. And the word “paradigm” is badly over-used, devaluing the carefully-argued meaning Thomas Kuhn gave the word when he wrote The Structure of Scientific Revolutions.
But when such a claim is made by Dani Rodrik we would do well to consider it seriously. Rodrik is the Foundation Professor of International Political Economy at Harvard’s John F. Kennedy School of Government, and is well-regarded across the political divide. In particular he has researched and written on globalization, analysing its various aspects, rather than considering it as one phenomenon.
He has a short article in Project Syndicate, The new productivism paradigm, suggesting that the economic philosophy known as neoliberalism is crumbling, to be replaced by an economic philosophy that focuses on production.
There is nothing radical or novel in his claim that neoliberalism is dying. As Kuhn would have predicted, the weaker it becomes the more stridently do its proponents defend it: neoliberalism is not departing quietly.
But what will replace neoliberalism? Rodrik suggests that “a new bipartisan consensus may be emerging around “productivism”, which emphasizes the dissemination of productive economic opportunities throughout all regions and all segments of the labour force. … It puts less faith in markets, is suspicious of large corporations, and emphasises production and investment over finance and revitalising local communities over globalisation.”
In his defence of some of America’s moves to shore up some of its domestic industries, Rodrik may come across as an old-fashioned protectionist, but he would not put himself into that camp. He has always reminded us of the positive aspects of globalization, and has been a strong defender of the liberal economic order. It’s more that he is trying to steer economic thought towards the real economy, where people grow food, make things, and provide services that people need, and away from the financial or transactional economy.
Whether such a move earns the label of a “new paradigm” is debatable, however. Perhaps he’s simply urging us to get back to economic basics.
What is “full employment”?
Writing on the ABC website, Gareth Hutchens points out that “currently, there are 480 000 job vacancies and 494 000 officially unemployed people.”
The simple mathematics is that supply = demand (consider the 14 000 as a sampling error). We have full employment! All we have to do is to keep our current policy settings, and we can live once again in the blissful days of postwar Australia.
Unfortunately it isn’t quite that simple, and our present situation is not what most economists have in mind when they talk about “full employment”.
Hutchens’ article One unemployed person per vacant job: Has Australia finally hit full employment? takes us into the meaning of “full employment” and the ways we have interpreted that meaning over the last 75 years.
In his article he mourns the passing of the Commonwealth Employment Service – an institution dedicated to matching workers to jobs – and its replacement with high-cost-high-profit private “employment service” companies, and a punitive rather than facilitative attitude to the unemployed. The CES was there to help, not to punish.
His main point is about what we mean by “full employment”, and whether we should tolerate a situation in which fear of unemployment is the main way our public policies regulate the labour market. That should surely be an agenda item for the September Jobs and Skills Summit.
Are world supply chains as weak as they seem to be?
As the world slowly emerges from the pandemic-induced recession, we are finding unexpected scarcities of particular items. Yards of thousands of almost-finished new cars waiting for a tiny chip is one of the phenomena of our time, and the general explanation is that Covid-19 has exposed the vulnerability of our supply chains.
Jayant Memon of Singapore’s ISEAS Yusof Ishak Institute, in an article re-posted on Open Forum, questions that explanation: Supply chains are stronger than they seem. He argues that what looks like weaknesses in supply chains is simply the result of pent up demand accumulated during lockdowns, and the disruptions of Russia’s invasion of Ukraine.
There has been some shift in supply chains, but by and large not much is happening. In response to US protectionism, China has moved some labour-intensive production offshore, but for more complex production, factories are staying put. The cost of relocating production – for example to “reshore” production back to the US – is generally too great. “The key industries that dominate global supply chains – electronics, transport equipment and machinery – have not seen much relocation”, he writes.
In his short paper he introduces the concept of “spillover protection”, which applies particularly in the case of tariffs imposed against particular countries. He points out that tariff protection generally hurts the country imposing tariffs – something well-known by Australians. He goes on to describe “spillover protection”, which is the benefit enjoyed by firms in countries not subject to selective tariffs. In its trade restrictions against China, for example, the USA has given Vietnam a huge amount of “spillover protection”.